Daily Rate Update: April 9th-13th

Consumer Sentiment slipped in early April after having hit a record high in March, due in part to the recent trade tariffs announced by the Trump administration. The Consumer Sentiment Index declined to 97.8 in early April from the March reading of 101.4 and below the 100.5 expected. In addition, the notion of higher interest rates down the road also pushed the index lower. The index measures the attitudes and expectations concerning both present and future economic conditions of 500 consumers.

Boston Fed President Raphael Bostic (non-voter, hawk) said this morning he supports three more rate hikes in 2018 as more tightening is needed. He said that his optimism for the U.S. economy exceeds that of the “quite positive” forecasts from his FOMC colleagues. The Federal Reserve raised the short-term Fed Funds Rate at its March meeting and forecasts two more hikes in 2018. However, if inflation remains low, the Fed may have a tough time raising rates more than two more times this year, despite what Mr. Bostic has said.

Earnings season kicked off this week and there is a growing sense that corporate earnings for the first quarter will be rather strong and guidance may be more upbeat due to tax cuts/reform. JPMorgan Chase, Wells Fargo and Citigroup all posted better-than-expected numbers on Friday while BlackRock Inc., the world’s largest asset manager, reported better-than-expected profits on Thursday. Earnings for S&P 500 companies are expected to rise 18.5% from a year ago, which would be the largest gain in seven years, according to Thomson Reuters.

Stocks are higher this morning as the investing community expects a strong earnings season and as the Syria tensions ebb. BlackRock Inc., the world’s largest asset manager, reported better-than-expected profits as first quarter earnings season kicks off. Earnings for S&P 500 companies are expected to rise 18.5% from a year ago, which would be the largest gain in seven years, according to Thomson Reuters. The Dow Jones Industrial Average was up 320 points in early Thursday trading.

Economist Elliot Eisenberg Ph.D., recently reported that as house prices relentlessly rise, the percentage of conventional loans this past winter going to borrowers with debt-to-income (DTI) ratios above 45% hit 20%, almost triple what the percentage was 12 months ago, but less than the housing boom peak of 36%. Meanwhile, the share of buyers with DTIs between 46% and 50% is near where it was in 2004-05 but remains well under the 2007 top. I’m slightly concerned.” You can subscribe to Mr. Eisenberg’s Daily Blog by going to www.econ70.com.

The minutes from the March Federal Open Market Committee meeting were released yesterday revealing that the Federal Reserve is on track for two more hikes to the short-term Fed Funds Rate in 2018. The minutes went on to say that Fed members feel the U.S. economy will continue to grow further and inflation will rise in the coming months. The Federal Reserve forecasts that Gross Domestic Product will rise 2.7% in 2018, up from the 2.5% reported back in December and sees 2.4% in 2019 from the previous forecast of 2.1%.

The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) fell 0.1% in March, below the expected gain of 0.1%. Lower gas prices at the pumps are to blame for the first decline in 10 months. When stripping out volatile food and energy, the Core CPI was in line at 0.2%. On a year-over-year basis, CPI rose 2.4% while Core CPI rose 2.1%, both 12-month highs. The Consumer Price Index measures the average price level paid by urban consumers (80% of the population) for a fixed basket of goods and services.

Heightened tensions over Syria between Russia and the U.S. are giving Bond prices a modest boost so far this morning. President Trump tweeted that Russia should get ready for a missile strike on Syria after the chemical attack over the weekend. Several Russian officials have threatened to retaliate if the U.S. strikes. U.S. Stocks are lower on the headlines.

Mortgage rates declined slightly in the latest week after climbing since the beginning of 2018. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage with conforming loan balances ($453,100 or less) declined to 4.66% in the latest week from 4.69%. That rate carries at least an average 0.40 point added on top. Within the report it showed that both the refinance and purchase index fell 2%.

Stocks are surging higher this morning after Chinese President Xi Jinping promised to cut import tariffs, and open the country’s economy. Mr. Xi went on to say that China will enforce the legal intellectual property of foreign companies. In economic news, the wholesale inflation reading Producer Price Index (PPI) for March rose 0.3% versus the 0.2% expected while the Core PPI also rose 0.3%, above the 0.2% anticipated. Mortgage Bonds lost a bit of steam on the news but have traded back to unchanged levels. The markets look ahead to tomorrow’s more closely watched Consumer Price Index for any signs of mounting inflation pressures.

Fannie Mae released its Home Purchase Sentiment Index (HPSI) on Monday showing that respondents who said now is a good time to purchase a home rose in March from February. Fannie Mae’s HPSI rose 2.5 points to 88.3, reversing February’s decline. Additionally, the net share who reported that now is a good time to sell a home increased 3 points. The net share who said home prices will go up in the next 12 months decreased three points in March, while the net share of consumers who said mortgage rates will go down over the next 12 months also increased 5 points.

The National Federation of Independent Business (NFIB) reports that its small business optimism index hit 104.7 in March, which is among the highest in survey history, though down from 107.6 in February. Within the survey it showed that a net 20% of small business owners are planning to create jobs, while 28% feel now is a good time to expand. “It has been a remarkable 16 months for small business optimism,” said NFIB President and CEO Juanita Duggan. “This is the first time in 35 years where the fewest number of small business owners have told us that taxes are their number one business problem.”

Quarterly earnings season ramps up this week with JPMorgan, Wells Fargo and Citigroup reporting on Friday. Wall Street feels that the corporate tax cuts could propel quarterly profits to their highest in seven years. The numbers will have a direct impact on U.S. Stocks this week depending on how companies have performed. It is expected that S&P 500 profits will increase nearly 19% in the first quarter of 2018.

Performance of first-lien mortgages remained largely unchanged during the fourth quarter of 2017 compared with a year earlier, according to the Office of the Comptroller of the Currency’s (OCC) quarterly report on mortgages. The OCC Mortgage Metrics Report, Fourth Quarter 2017, showed 94.5% of mortgages included in the report were current and performing at the end of the quarter, compared to 94.7% a year earlier. The report also showed that foreclosure activity has increased from the previous quarter.

Gas prices at the pumps continued to rise this week as the market continues to purge winter-blend gasoline to make room for summer storage. The national average price for a regular gallon of gasoline is at $2.66, up from $2.53 a month ago. Last year this time the price was $2.38. The highest price ever recorded was $4.11 back on July 17, 2008. Expect modestly higher prices in the coming months as the spring and summer driving seasons get underway.